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The Only Lasting Competitive Advantage Is Extreme Trust

As technology generates more transparency, consumers will hold businesses to higher standards, with no room for flimflammery or deceit. Being proactively trustworthy requires you to watch out for your customer’s interest even when your customer isn’t paying attention.

This past Christmas season Amazon stole business from brick-and-mortar retailers with its free Price Check app for iPhone and Android. With Price Check, your phone could scan the barcode on any product in any retail store, or simply take a picture of it, and then compare its price with Amazon’s. And, pouring salt on wounds already being nursed by retailers everywhere, Amazon also announced that if you were in a store, used Price Check, and then bought the item from Amazon, you’d get an extra discount—mobile magic for the coupon-clipping set. 

Price Check is Amazon’s contribution to instant, frictionless price transparency, and it represents just one of the many skirmishes in what promises to be a decades-long transformation of our entire commercial system. Technologies and services like Price Check are now steadily tearing away the protections that sellers used to be able to hide behind in their efforts to make a profit by selling commodity products at non-commodity prices. During the Christmas shopping period, more than a whopping 40% of all Google inquiries for "last minute gifts and store locator terms" came from mobile devices

For years now, Internet guru Doc Searls has been suggesting that the future of commerce will be defined not in terms of how commercial enterprises manage their selling and marketing processes, but by how consumers manage their spending and buying processes. While businesses have been using ever more sophisticated computer technology to do "CRM," or "customer relationship management," Searls maintains that the real endgame for ubiquitous, inexpensive interactivity will be consumers managing their relationships with the vendors they buy from, a process he dubs "VRM," for "vendor relationship management."  

CRM can be thought of as a set of business processes and technologies for treating different customers differently, which completely undermines the traditional product-centric business processes used by nearly all companies and organizations until near the end of the 20th century. In our 1993 book The One to One Future, Martha Rogers and I called this new kind of competition "one to one marketing," but "CRM" is easier on the tongue and we ourselves have used these two terms interchangeably for the last 15 years. In 1993, we predicted that eventually consumers would take things over entirely. We called it "privacy intermediation," rather than VRM, and our thinking was that sooner or later technology would be so inexpensive that consumers would be able to use it themselves to retain control of their own personal information and preferences, rather than having them "managed" by the companies they dealt with. (And today one interesting startup in the VRM business is Privowny, the brainchild of a French entrepreneur, a company promising to help consumers manage their relationships with the companies they interact with by protecting their privacy and allowing them to retain control of their personal data.) 

For your own business, in the face of this onslaught of galloping transparency, the question you have to ask yourself is, how will you make a profit when your customers know everything about your costs and pricing and have more or less instant access to your strongest competitors, anywhere in the physical world? This dilemma will soon confront every business in every industry, but since we started with brick-and-mortar retailers, let’s stick with them. A physical store’s natural advantages, when it comes to competing with online retailers, include its local presence, a physical showroom, and so forth. Using these advantages, I can think of at least four competitive strategies; maybe you can think of more:

1. Improve the customer experience within the store.  When Target puts a Starbucks in front of the cashiers’ stations, or when a bookstore adds a reading lounge and brings in authors for book signings, this is what they’re trying to do. The only problem is, even though customers might find the store experience more inviting, they could still choose to buy the product somewhere else (perhaps just by using their smartphone), which is one reason Borders has closed its doors and Barnes & Noble isn’t doing so well, while online book vendors continue to grow briskly.

2. Charge admission.  Don’t laugh, this is exactly what warehouse stores like Sam’s Club and Costco do. They charge customers an annual membership fee for the privilege of entering their stores. Other kinds of stores do this on an occasional basis. When the iPhone was first introduced, Apple stores charged admission in order to manage the crowds of customers jamming in to see it. And some independent bookstores have begun charging admission for customers who come to the store for author book signings and similar events. It isn’t hard to imagine a retailer charging customers a one-time fee for entry, and refunding that fee against any product bought within, say, 48 hours.

3. Build a service business.  Help your customers install, maintain, and repair the products they buy in your store. A car dealer with a great service reputation is likely to generate better car sales, even when facing competition from no-service vendors selling the same cars for less. And where I live in Georgia, we could buy our electronics products online or from any of several "big box" retailers, but we usually buy from H&H Lifestyles, a local retailer with slightly higher prices and a reputation for comprehensive and excellent in-home service. (This way when the home theater system gets out of whack, we don’t have to wait for one of the kids to come home from college before getting it to work again!)

4. Extreme trust.  This may be the strongest strategy of all, because it makes it likely your customers themselves will want you to succeed. Being proactively trustworthy (we call it "trustable") requires you to watch out for your customer’s interest even when your customer isn’t paying attention. For instance, if you try to buy something from iTunes that you already bought, they’ll remind you that you already own it. Ditto Amazon. Extreme trust like this engages people’s natural impulse to show empathy, transcending the commercial domain of monetary incentives and tapping into the social domain of friendship, sharing, and reciprocity. And extreme trust should be even easier for a physical store to earn, because most people find it easier to trust other people they come face to face with.

Extreme Trust is actually the title of Martha’s and my next book (our 10th together), due out in March. In it we suggest that as technology generates more and more transparency (from Price Check, to reviews on Yelp, complaints on Twitter, and other social tools), you can expect consumers to hold businesses to higher and higher standards. And the only reliable competitive advantage that any business is likely to have, in the totally transparent future, is the extreme trust of its customers. 

[Image: Flickr user Raul Lieberwirth]